Around 75% of the shares in my portfolio pay a dividend. I’m using stocks that offer income as a key method to help me build my wealth and take me a step closer to financial freedom.
Here are without a doubt my favourite two I own from the FTSE 100 and FTSE 250.
HSBC
My first choice is HSBC (LSE: HSBA). It has been a volatile year for the bank. Its share price nosedived back in February after releasing its 2023 results. That’s when I decided to jump in and buy some shares. It staged a decent recovery after that. But it’s down 4.9% in the last month.
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That means today it sports a 7.4% yield. That’s impressive. What’s more, it doesn’t account for the special dividend the firm is set to pay this year after selling its Canadian business. When taking that into consideration, its yield is closer to 10%.
In its latest update to investors in July, the business said it had initiated a $3bn share buyback scheme, which is expected to be completed within three months.
Its Asian exposure is a double-edged sword. In the near term, I suspect it will pose a risk. The Chinese economy has been flagging, especially its property market. HSBC has exposure to that. That’s one of the reasons its share price has been so volatile this year.
But in the long run, I reckon its focus on Asia will pay off. That’s because it’s home to some of the fastest-growing economies in the world.
So, £20,000 invested in HSBC today would earn me a passive income of £1,480 a year. However, if I reinvested my dividends across a 30-year investment timeframe to benefit from ‘dividend compounding’, by year 30 I’d make £11,935 as a second income. My pot would have grown from £20,000 to £172,307.
Games Workshop
Next up is FTSE 250 constituent Games Workshop (LSE: GAW). Like HSBC the stock has moved up and down this year. Still, it’s currently up 1.7% in 2024.
That means it now yields 3.7%. It’s far from the highest available on either the FTSE 100 or FTSE 250. However, there’s one specific reason I love it.
Games Workshop only uses “truly surplus cash” to reward shareholders. That fills me with confidence that the firm will keep paying out to investors. That’s especially important as dividends are never guaranteed.
Its dividend has also experienced major growth and the firm has plans to keep raising it. With plenty of cash to hand, it certainly has the balance sheet to do so.
One risk I do see with Games Workshop is rising competition. The miniature wargame industry continues to grow. No doubt that will attract new players to the space, putting pressure on the company.
However, with a dominant market position and loyal customer base, I remain bullish on the stock.
My £20,000 invested in Games Workshop today would earn me a passive income of £740 a year. But as with the example above, if I waited 30 years and reinvested all the dividend payments I received during that time, by year 30 I’d make £2,197 for the year in passive income. My initial £20,000 outlay would have built up to a port worth £60,584.
